Vancouver Cools Foreign Bid for Property

Like Melbourne and Sydney, the Vancouver real estate market has been hot for a decade, and red hot the past 12 months. Property is largely out of reach for the median city-dweller in most parts of the city.

Like Melbourne and Sydney, perhaps more so, foreign money, particularly Chinese—is being pointed out as a major contributing factor. A lot of focus in recent months has been on foreign money from potentially corrupt sources.

The local and British Columbia governments have copped a lot of criticism over the issue—accusations from neglect through to complicity and profiteering. In response, and likely with an eye on the polls, they’ve made an interesting move.

Those saying that foreign inflows into markets like Australia’s metropolitan markets, London and Vancouver are small and irrelevant are likely wrong. And those blaming it as the chief cause of our bubbles are probably wrong too. Vancouver is going to provide an interesting case study over the coming months and years.

I’m also intrigued to see what effect it will have on inflows into Australia. The NSW government is introducing a 4% stamp duty surcharge on foreign buyers, starting next year. But, compared with Vancouver, Australian cities might have just gotten even more attractive as a destination for the investment dollar of Chinese nationals. Absent new measures, the inflows might get more torrid.

Discouraging foreign buyers from picking up overvalued assets is right up there as one of the most idiotic government conceptions of all time (and there have been some crackers).

With property prices where they are, we should be paying a subsidy to foreign buyers who purchase property from Australian citizens instead of taxing them.

A government’s obligation is to work towards the wellbeing and betterment of its citizens, which would mean that an ideal scenario would be one in which Australia’s entire real-estate stock was sold to foreigners right at the moment that the market peaked.

Obviously, this is unrealistic. But that doesn’t mean that we shouldn’t strive for it.

Although Bristlemouth is one of the only places where I can say such things without being dismissed as crazy.

In an “ideal” world, wage growth might exceed house price growth (Yogi Berra) but we live in the world of stagnating wage growth and ever increasing house price growth. As the aim of business is to keep costs ( wages) to a minimum, the “ideal” world is an elusive phantom.

Having just come back from Vancouver, I can tell you this is a very hot issue.

Locals are very p**sed off that tiny 2 bedroom apartments are completely unaffordable – both to purchase, and to rent. In once case I heard of small apartments renting for thousands of C$ / month, and its easy to see 50% – 70% of income post taxes just going into paying rent. That same small apartment would sell for over C$1M. Also stories of houses, only worth demolition value, selling for millions.

It’s all very well to think that we (or they) should sell the entire housing stock to crazy foreigners. Trouble is the locals have to live somewhere. Sure they can live 1-2 hours commute away, but that’s not really very sensible or practical either.

I don’t know where in Vancouver you were looking I was there 2 weeks ago and although house price are much higher than Sydney, apartment prices were comparable. However the return on investment is extremely low, brand new one bed room apartments for $1,800 a month in a similar area, Cammeray/North Sydney it would be $2,500.
Also Vancouver – Canada didn’t have any restrictions on foreign buyers ie limited to new properties.

For the avoidance of any confusion for any Canadian readers, we’re talking about Victoria, Australia here, not Victoria, British Columbia.
If I’ve read the rules correctly, Victoria, Australia, had no additional impost on foreigners prior to 1 Jul 2015, and a 3% additional stamp duty from 1 July 2015 – 30 June 2016. This went up to 7% from 1 July 2016. It’s early days to see if it impacts foreign interest.http://www.sro.vic.gov.au/foreignpurchaser
Vancouver’s 15% additional impost on top of normal rates and taxes for locals is a heftier bite, but I’d be surprised if Victoria’s new tax regime doesn’t curtail inbound investment over time. It may well funnel Chinese money from Melbourne towards Sydney and Brisbane, all things being equal.

Far from conclusive evidence yet, but over the first few weeks of August there was a very sharp downturn in volumes (that will unwind somewhat over the coming months as the ‘bring forward’ effect dissipates) and a big drop in average prices (admittedly, a highly problematic metric):

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